CVS Health to acquire Omnicare

WOONSOCKET, R.I. and CINCINNATI — CVS Health announced on Thursday that it has entered an agreement to acquire Omnicare, a provider of pharmacy services to long-term care facilities, for $98 per share in cash, for a total enterprise value of approximately $12.7 billion, which includes approximately $2.3 billion in debt.

"The acquisition of Omnicare significantly expands our business, providing CVS Health access into a new pharmacy dispensing channel," said CVS Health president and CEO Larry Merlo. "It also creates new opportunities for us to extend our high-quality, innovative pharmacy programs to a broader population of seniors and chronic care patients as they transition across the care continuum. We have been impressed by the Omnicare team and what they have created for the patients they serve."

With the acquisition of Omnicare, CVS Health will significantly expand its ability to dispense prescriptions in assisted living and long-term care facilities, serving the senior patient population. CVS Health will also expand its presence in the rapidly growing specialty pharmacy business. Omnicare's complementary specialty pharmacy platform and clinical expertise will augment CVS Health's capabilities and enable CVS Health to continue to provide innovative and cost-effective solutions to patients and payors. In total, Omnicare has approximately 13,000 employees at 160 locations in 47 states across the United States.

"This attractive strategic acquisition provides CVS with an incremental dispensing channel in long-term care and assisted living, which represents 72% of Omnicare’s revenues. Retail and long-term care are complementary channels, as patients cycle between assisted living and home health settings. CVS has a strong record of improving health outcomes at the lowest possible cost—a vision shared by Omnicare—and the combined companies should be able to improve gaps in existing care," stated William Blair analyst Mark Miller in a research note.

The boards of directors of both companies have approved the transaction, which is subject to approval by the holders of Omnicare's common stock, as well as other customary closing conditions, including applicable regulatory approvals. The transaction is expected to close near the end of 2015.

CVS Health expects to achieve significant purchasing and revenue synergies, as well as operating efficiencies from this combination. The company expects the transaction to be approximately 20 cents accretive to adjusted EPS in 2016, its first full year, excluding integration and any one-time transaction costs. It is expected to become increasingly accretive to adjusted EPS in subsequent years.

The company has secured $13 billion in fully committed unsecured bridge financing from Barclays and expects to put in place permanent financing in the form of senior notes and/or term loans prior to the closing of the transaction. CVS Health expects that it will continue to have a solid balance sheet and, with its strong free cash flow, is committed to returning to its targeted leverage ratio of 2.7 times adjusted debt-to-EBITDA.

"We are pleased to have reached this agreement with CVS Health, one of the leading companies in the health care industry, which we believe will allow us to accelerate our mission of enhancing the quality and cost-effectiveness of care for complex patient populations," stated Omnicare president and CEO Nitin Sahney. "This exciting combination is the result of a broad and thorough review of our strategic options. On behalf of the Omnicare team, I'd like to thank our 13,000 employees whose hard work and dedication has enabled Omnicare to become a recognized leader in pharmacy services."

Given the aging U.S. population, long-term care is a growth segment of the healthcare system. More people are expected to use assisted living facilities and independent living communities in the coming decades, creating a substantial growth opportunity for those companies serving the healthcare needs of seniors.

In entering this new customer distribution channel, CVS Health is looking to deliver meaningful benefits to consumers, patients, caregivers, and payors by providing highly coordinated clinical pharmacy care across multiple treatment settings from retail to long-term care, the company said. CVS Health is also aiming to improve patient outcomes and provide enhanced continuity of care to patients and caregivers as they transition through the health care system.

Added Miller, "CVS also should be able to enhance the profitability and growth of Omnicare's specialty business, which is the eight-largest provider in the market and represents 28% of Omnicare sales. CVS has a strong record of execution, in our view, and some finesse may be required here as Omnicare’s specialty business has been more closely aligned with pharmaceutical manufacturers versus CVS’s aggressive formulary management on behalf of payers."

Retail pharmacies jockeying for pet med share

Is there a niche OTC opportunity on which food, drug and mass retailer pharmacies are not fully capitalizing? If the answer isn’t yes, then the cat is already out of the bag — according to the American Pet Products Association the market for pet supplies and OTC medicines will grow by 4.7% by the end of the year. The APPA projects $14.4 billion will be spent on pet supplies and OTC medicines for animals in 2015, which compares to $13.8 billion actually spent in 2014.

According to Packaged Facts’ “Pet Medications in the U.S., 3rd Edition,” veterinarians sold an estimated 58% of dog and cat medications in 2013, while mass marketers accounted for 18% of medication sales. Similarly, Packaged Facts’ “Pet Supplements in the U.S. 5th edition” reported that 45% of pet supplements were sold through such specialty retailers as Petsmart in 2014, 35% in veterinary clinics and the remaining 20% of supplements were purchased online, in the natural grocery channel or at mass market retailers.

Less than 1-in-5 pet medicines or supplements are sold through mass retail. That barks opportunity.

The retail pharmacy community is absolutely jockeying for their fair share of pharmaceutical prescriptions for animals. Earlier this year, AmerisourceBergen significantly enhanced its animal health stake with the acquisition of MWI Veterinary Supply, and Chicago’s Shedd Aquarium announced a deal with Walgreens where the retail pharmacy operator will provide medicines and supplements for the 32,000 animals under Shedd’s care.

Diagnostic kiosks are no longer limited to just a blood-pressure machine in the pharmacy area. As pharmacies become frontline healthcare providers, more are offering patients interactive devices that monitor a wide range of health-related factors, including vision, weight, body mass index, pulse and blood pressure.

The advanced technology behind the newest breed of kiosks allows them to be used as a patient’s personal healthcare library, securely storing data in a private, online account for ongoing reference and progress comparison. Others give users access to a database of local physicians.

Kiosks also are gaining validity from ongoing research and from manufacturers allying with healthcare providers.

Last fall, for example, the Journal of the American Society of Hypertension published the results of a study showing that the blood-pressure measurements of hypertensive adults who used PharmaSmart kiosks in community pharmacies were similar to those taken by ambulatory and automated office methods.

Meanwhile, kiosk-maker Pursuant Health (formerly SoloHealth) recently began using research from Cleveland Clinic Wellness Enterprise to develop a health-and-wellness platform delivered through its kiosks, mobile access points and online.

Winnipeg, Manitoba-based Miraculins recently released the results of a pilot program for its Scout DS diabetes screening kiosk. Partnering with the Canadian chain Lovell Drugs and Pear Healthcare Solutions, the 16-day trial used interactive kiosks to screen patients for prediabetes or Type 2 diabetes, identifying 41% of the more than 350 people screened as being at elevated risk for the conditions.

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The workshops, sponsored by McKesson, have been offered by the Alexandria, Va.-based organization for more than 20 years and are slated to take place June 8-10 in Denver, Colo., and Oct. 4-6 in Boston.

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